Tax credits for people who work

Sizeable tax credits still exist for working families — especially
those with children — but up to 20 percent of eligible Missouri
families still do not file for them. Families making so little that
they are not required to file a tax return might greatly benefit
from doing so.

Low- and moderate-income families may qualify for one or more
of four federal tax credits — the Child Tax Credit, the Additional
Child Tax Credit, the Earned Income Tax Credit and the Child and
Dependent Care Credit. The credits’ rules overlap in some ways and
differ in others, but many families may qualify for all four.

Child Tax Credit

The Child Tax Credit is a federal tax credit worth up to $1,000
per child in tax year 2011. Families must have dependent children
under age 17 to get it. Millions of families became eligible last
year even if they owed no taxes. The additional tax credit comes
as a refund from the IRS to families making more than $3,000 in
2011.

Generally, the 2011 Child Tax Credit is available to a single
or married worker who:

is able to claim a child under age 17 as a dependent (child
must live in the U.S. as a citizen or resident alien and be
a son, daughter, stepchild, grandchild, adopted child, agency-placed
foster child, or sibling, stepsibling, niece or nephew being
raised as the taxpayer’s own)

has had the qualifying child living in the taxpayer’s household
for more than half of the year, and the child must not have
provided more than half of his or her own support

has either a Social Security number or an Individual Taxpayer
Identification Number

files IRS Form 1040 or 1040A.

The Child Tax Credit first reduces or eliminates a family’s income
tax bill of $1,000 or less. Any portion that remains comes back
as a refund for families making more than $3,000 in the form of
the Additional Child Tax Credit (see below). The total size of the
additional credit depends on the amount by which the family’s earned
income exceeds $3,000, and the credit is phased out for families
with adjusted gross incomes above:

$110,000 if married filing jointly;

$75,000 if single, head of household, or qualifying widow(er);

$55,000 if married filing separately.

Additional Child Tax Credit

The Additional Child Tax Credit is available even if someone
does not make enough money to claim the entire $1,000 Child Tax
Credit. Unlike the nonrefundable Child Tax Credit portion, the refundable
Additional Child Tax Credit comes in the form of a refund even if
you do not still owe taxes. The size of the Additional Child Tax
Credit depends on how much the family income exceeds $3,000 and
is subject to the same income phase out limits as the Child Tax
Credit.

Earned Income Tax Credit

The Earned Income Tax Credit is a special tax benefit for low-
to moderate-income workers. It reduces their tax burden, supplements
wages and makes work more attractive than public benefits. The credit
can mean up to $3,094 for workers raising one child in their home,
up to $5,112 for workers raising more than two children, or up to
$5,751 for workers raising three or more children. Although children
must meet residency requirements, a child does not have to be claimed
as a dependent to qualify a worker for the Earned Income Tax Credit.
Even workers without children can qualify for up to $464.

The Earned Income Tax Credit is for full-time or part-time, single
or married workers raising at least one qualifying child at home
— and for some childless workers. Workers must meet certain income
standards. A qualifying child is a son, daughter, stepchild, adopted
child, agency-placed foster child or grandchild, or a sibling, stepsibling,
niece, nephew, stepniece or stepnephew being raised as the taxpayer’s
own. Any qualifying child must be under age 19, under 24 if in school
full-time for at least five months during 2011, or any age if totally
disabled.

Taxpayers who:

earned less than $36,052 (or $41,132 for married workers)
and raised one child in their homes may be eligible for a credit
of up to $3,094

earned less than $40,964 (or $46,044 for married workers),
and raised two children in their homes, may be eligible for
a credit of up to $5,112

earned less than $43,998 ($49,078 for married workers),
and raised three or more children in their homes, may be eligible
for a credit of up to $5,751

are at least age 25 and under 65, who earned less than $13,660
(or $18,740 for married workers) and did not raise children
in their homes may be eligible for a credit of up to $464.

To claim the credit, you must:

have earned income from wages or self-employment

have a Social Security number for everyone on the tax return
with names and numbers that perfectly match what Social Security
cards show

file IRS Form 1040 or 1040A (must file jointly to get it
if married)

file IRS Schedule EITC, if you have qualifying children

Child and Dependent Care Credit

The Child and Dependent Care Credit is a tax benefit that helps
families pay for child care while they work or look for work. It
also helps workers pay for the care of a spouse or adult dependent
who is incapable of self-care. It can offset taxes taken out as
payroll withholding and cover what is still owed at the end of the
year, depending on the size of the credit. In most cases, the credit
can only be claimed for a child who is claimed as a dependent, but
there are special rules for children of divorced or separated parents.

The Child and Dependent Care Credit differs from both the Earned
Income Tax Credit and the Child Tax Credit in that families earning
too little to pay federal income tax cannot take the Child and Dependent
Care Credit. The Child and Dependent Care Credit is between 20 and
35 percent of expenses up to $3,000 for one child or dependent,
or up to $6,000 for more than one child or dependent. It can mean
a credit up to $1,050 for families with one child or dependent in
care, or up to $2,100 for families with more than one child in care.

Families can claim the Child and Dependent Care Credit if:

they paid for care in 2011 for a child under age 13 or a
disabled adult who lived with them, and they had earned income
during the year

they file IRS Form 1040 or 1040A

they paid more than half the cost of keeping up their home
(rent, food, etc.)

they needed the care to work or look for work (both spouses
must need the care in a two-parent family, unless one is a full-time
student or disabled)

they file Form 2441 (if they use a 1040) or Schedule 2 (if
they use a 1040)

the amount they paid for dependent care in 2011 was less
than their income for the year (for married couples filing jointly,
the care must have cost less than the income of the lower-earning
spouse)